Notes on raising seed financing

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– Chris Dixon is the co-founder of Hunch and of seed fund Founder Collective. This blog originally appeared here. The views expressed are his own. –

I recently taught a class via Skillshare (disclosure: Founder Collective is an investor) about how to raise a seed round. After a long day I wasn’t particularly looking forward to it, but it turned out to be a lot of fun and I stayed well past the scheduled end time. I think it worked well because the audience was full of people actually starting companies, and they came well prepared (they were all avid readers of tech blogs and had seemed to have done a lot of research).

I sketched some notes for the class which I’m posting below. I’ve written ad nauseum on this blog (see contents page) about venture financing so hadn’t planned to blog more on the topic. But since I wrote up these notes already, here they are.

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1. Best thing is to either never need to raise money or to raise money after you have a product, users, or customers. Also helps a lot if you’ve started a successful business before or came from a senior position at a successful company.

2. Assuming that’s not the case, it’s very difficult to raise money, even when people (e.g. press) are saying it’s easy and “everyone is getting funded.”

3. Fundraising is an extremely momentum-based process. Hardest part is getting “anchor” investors. These are people or institutions who commit significant capital (more than $100,000) and are respected in the tech community or in the specific industry you are going after (e.g. successful fashion people investing in a fashion-related startup).

4. Investors like to wait (“flip another card over”) while you want to hurry. Lots of investors like to wait until other investors they respect commit. Hence a sort of Catch-22. As Paul Graham says:

By far the biggest influence on investors’ opinions of a startup is the opinion of other investors. There are very, very few who simply decide for themselves. Any startup founder can tell you the most common question they hear from investors is not about the founders or the product, but “who else is investing?”

5. Network like crazy:

Make sure you have good Google results (this is your first impression in tech). Have a good bio page (on your blog, LinkedIn and About.me) and blog/tweet to get Google juice.

Get involved in your local tech community. Join meetups. Help organize events. Become a hub in the local tech social graph.

Meet every entrepreneur and investor you can. Entrepreneurs tend to be more accessible and sympathetic and can often make warm intros to investors.

Avoid anyone who asks you to pay for intros (even indirectly like committing to a law firm in exchange for intros).

Read TechCrunch, Business Insider, GigaOm, Techmeme, HackerNews, Fred Wilson’s blog, Mark Suster’s blog, etc (and go back and read the archives). Follow investor/startup people on Twitter (Sulia has some good lists to get you started here and here).

Research every investor and entrepreneur extensively before you meet them. Entrepreneurs love it when you’ve used their product and give them constructive feedback. It’s like bringing a new parent a kid’s toy. Investors like it when you are smart about their portfolio and interests.

6. How much to raise? Enough to hit an accretive milestone plus some buffer. (more)

10. Co-founders: they are good if for no other reason than moral support. Find ones that complement you. Decide on responsibilities, equity split, etc. early and document it. (Legal documents don’t hurt friendships – they preserve them).

11. Incubators like Y Combinator and TechStars can be great. 99 percent of the people I know who participated in them say it was worth it.

12. To investors, the sexiest word in the English language is “oversubscribed.” Sometimes it makes tactical sense to start out raising a smaller round than you actually want to end up with.

Being a start-up that needs funding, this article was well written for your typical start-up. I like the simplicity of the wording. It is very easy to talk about it with others. I sometimes wonder why everyone promotes the top 10 incubators, when in todays world of technology, they should be promoting the top 1,000.

On behalf of everyone that I will share this article with, I would like to say “thank you” I think being an entrepreneur is most rewarding and I love the game it’s self.

This is the first time I have had to raise capital. The Daily Deal and Extreme Couponing industries are exploding right now.

I will most likely find an investor who is looking to make 100′s of millions, not billions. My plans are gobal, but are niche markets.

Author Profile

Chris Dixon is co-founder of Hunch and founder of Founder Collective, and an investor in many early-stage companies like Skype and Foursquare. Previously he co-founded Siteadvisor, which was acquired by McAfee.